Equities display impressive recovery following unprecedented plunge triggered by Trump's tariff decision announcement.
Rewritten Article:
In the aftermath of President Donald Trump's "Liberation Day" tariffs announcement, the stock market seemed to be haunted by a ghostly preview of financial downturns past.
From April 2 through April 9, the S&P 500 plummeted by over 12%, a decline common only during extreme events like the Covid-19 pandemic, the subprime mortgage crisis of 2008, and even the fifth-worst two-day percentage decline since World War II.
As bond yields rose and the United States faced questions about meeting its debt obligations, fears escalated, causing global stocks to plummet. Terrifying as this situation seemed, it wouldn't last long.
According to Deutsche Bank analysts, the financial markets experienced a seismic shift last April as traders reacted to the announcement of US reciprocal tariffs. By April 9, Trump backed off some of his tariffs, triggering an unexpected euphoria among investors. In a rare 9.5% gain, the S&P 500 executed a stunning comeback, returning to where it was when the "Liberation Day" tariffs were first announced. Volatility in government borrowing costs eventually leveled off as well.
Thirty-two days after the historic Rose Garden speech, stocks staged an impressive recovery. Though the broader market remains about 6% below pre-Inauguration Day levels, some blue chip companies like Apple are still struggling. The iPhone maker's stock has plunged more than 20% since its all-time high last winter, although factors beyond the president's policies may be at play. Tesla, another company closely tied to Trump, is still 40% off its December peak.
Experts attribute this recovery to a combination of Trump's softer tone on tariffs and investors adopting a new mindset that has come to accept tariffs as a permanent part of the economic landscape. Market experts argue that "We're no longer questioning if tariffs are coming, but rather what we'll do about them."
Traders, who have been pumping money into investment vehicles called exchange-traded funds (ETFs) at record levels, are playing a significant role in this recovery. Retail investors, or everyday buyers who are more likely to make frequent market trades than institutional investors, appear to be driving the recovery wave. With the majority of self-directed investors viewing stocks favorably, funds like Vanguard ETF have seen a historically large influx of over $21 billion during the month of April.
"It's not just retail investors, but retail has clearly been leading the charge," said Steve Sosnick, chief strategist at Interactive Brokers.
This retail investment surge began during the pandemic and gained popularity when self-proclaimed traders used online forums to tout "meme" stocks, such as GameStop and Bed Bath & Beyond. Although the hype surrounding meme stocks has died down, the mindset of "buying the dip" remains popular, according to analysts.
"Investors seem to believe that every dip offers a buying opportunity, and if enough investors hold that belief, it can come true," added Sosnick.
However, the recovery remains fragile, with markets remaining on high alert for even the slightest whispers of trade deals or hints of a worsening trade dispute with China. The unstable economic picture means stocks remain vulnerable to future shocks, as investors continue to grapple with the long-term effects of Trump's tariffs.
"It's still early days," cautions Roxanna Islam, head of research at VettaFi. "The air is still thick with uncertainty."
- The stock market's sudden decline in April was reminiscent of extreme events like the Covid-19 pandemic, the subprime mortgage crisis of 2008, and even the fifth-worst two-day percentage decline since World War II.
- Fears escalated as bond yields rose and the United States faced questions about meeting its debt obligations, causing global stocks to plummet.
- By April 9, Trump backed off some of his tariffs, causing an unexpected euphoria among investors, leading to a rare 9.5% gain in the S&P 500.
- Experts attribute this recovery to a combination of Trump's softer tone on tariffs and investors adopting a new mindset that has come to accept tariffs as a permanent part of the economic landscape.
- Retail investors are driving the recovery wave by pumping money into investment vehicles called exchange-traded funds (ETFs) at record levels, with funds like Vanguard ETF experiencing a historically large influx of over $21 billion during the month of April.
- Traders are playing a significant role in this recovery, with some adopting a mindset of "buying the dip," which means viewing every dip as an opportunity for investment.
- The recovery remains fragile, with markets remaining on high alert for even the slightest whispers of trade deals or hints of a worsening trade dispute with China, making stocks vulnerable to future shocks as investors continue to grapple with the long-term effects of Trump's tariffs.
